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29 Oct 2015, 19:49
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As the economist George Akerlof has shown in his famous model of the used car market, an asymmetry in available information allows merchants to sell their low quality or defective goods for the same price as those of good quality, creating incentives for dishonesty. If a buyer seeking a used car knows that there are both defective and high quality cars on the market but cannot determine the quality of any given car, he or she will not be willing to pay the full price of a quality car. However, since the buyer does not know whether a car is defective, he or she will always offer a price above the value of a defective car. Therefore, defective cars, whose owners know that they will turn a profit on any sale as long as they are willing to hide the defects, will crowd out quality cars, whose owners know they will not be able to receive the full value for their car, and both the market and the consumers will suffer.
In order to counteract the effects of asymmetric information, several institutions have appeared to protect the consumer and allow high quality goods to be sold on the market. One such institution is government-based regulators, whose job is to develop industry standards and inspect the quality of products on the market. In general, the government creates negative incentives for dishonest market behavior by criminalizing it. Another type of institution is third party bodies, either profit or non-profit, including consumer advocate organizations, websites devoted to information exchange, and the consumer reports industry. These bodies provide the buyer with the tools to evaluate the quality of any given product and thus are designed to make dishonest behavior less profitable.
The author of the passage implies that government
A. prevents dishonest market behavior
B. has been pressured by voters to stop dishonest market behavior
C. is concerned with sellers' market behavior
D. performs honest regulating
E. provides useful information for consumers
In order to counteract the effects of asymmetric information, several institutions have appeared to protect the consumer and allow high quality goods to be sold on the market. One such institution is government-based regulators, whose job is to develop industry standards and inspect the quality of products on the market. In general, the government creates negative incentives for dishonest market behavior by criminalizing it. Another type of institution is third party bodies, either profit or non-profit, including consumer advocate organizations, websites devoted to information exchange, and the consumer reports industry. These bodies provide the buyer with the tools to evaluate the quality of any given product and thus are designed to make dishonest behavior less profitable.
The author of the passage implies that government
A. prevents dishonest market behavior
B. has been pressured by voters to stop dishonest market behavior
C. is concerned with sellers' market behavior
D. performs honest regulating
E. provides useful information for consumers
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29 Oct 2015, 22:20
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Is the answer B? Please reveal OA.
The author of the passage implies that government
A. prevents dishonest market behavior..........extreme conclusion
B. has been pressured by voters to stop dishonest market behavior............govt is supposed to stop market behavior because of its voters
C. is concerned with sellers' market behavior.............not mentioned
D. performs honest regulating...........supposed to but not sure whether it happens
E. provides useful information for consumers............there is no such info
The author of the passage implies that government
A. prevents dishonest market behavior..........extreme conclusion
B. has been pressured by voters to stop dishonest market behavior............govt is supposed to stop market behavior because of its voters
C. is concerned with sellers' market behavior.............not mentioned
D. performs honest regulating...........supposed to but not sure whether it happens
E. provides useful information for consumers............there is no such info
I am not 100% sure . Maybe someone else wants to contribute. Thanks.
